Attracting BusinessBerlin’s Brexit Opportunity

Berlin is hoping its reputation as a startup capital may extend to Brexit.

Toni Horn knew he wanted to open a new location in Berlin. He just didn’t know it would happen so fast.

Then came Britain’s decision to leave the European Union. Mr. Horn, the German co-founder of British website consulting startup MBJ, decided that now was as good a time as any.

“The choice fell to Berlin for multiple reasons – for the talent, the support you have here from the startup community, but also partly the decision was accelerated due to the Brexit,” Mr. Horn told Handelsblatt Global. “We said we would rather relocate to a city within the European Union, where free labor will not be an issue, and be safe on that side.”

As soon as we learned about the official decision of Brexit, Berlin asked itself what consequences and chances can come to the city. Andrea Joras, Berlin Partner

MBJ set up shop in Berlin, its first location outside of London, in September, as much as a year before they had originally planned. The consulting firm is based in a swanky co-working office for startups called WeWork near the top of Berlin’s futuristic-looking Sony Center on Potsdamer Platz.

It is still early stages – Britain is only set to start formally negotiating its exit from the European Union in March – but there’s no doubt that Brexit could be an opportunity for the German capital, which already bills itself as Europe’s hub for startups.

MBJ is one of five companies that already made a decision to shift at least some resources from London to Berlin in the second half of 2016. Mr. Horn says that was easier than waiting because things like hiring or moving workers could become a “massive headache” once Britain is actually outside the European Union.

Others may soon follow suit. Officials here in Berlin say they’ve been in contact with about 40 businesses in total that are considering making the move.

“As soon as we learned about the official decision of Brexit, Berlin asked itself what consequences and chances can come to the city. We established quite soon an office in London,” Andrea Joras, managing director of Berlin Partner, a city-backed public-private partnership that works with companies setting up in Berlin, told Handelsblatt Global. “We feel that this can be turned into a chance for Berlin and that’s also our aim.”

The city is rolling out the red carpet for anyone that wants to come. Chris Nobbs, director of partnerships at MBJ, said Berlin Partner helped with everything from finding an office and getting grants from the German government or development banks, all the way down to smaller steps like registering with the local authorities and finding appropriate schools for employees’ children.

Video: Berlin is rolling out the red carpet for London firms.

Even the small things can make a difference, since Berlin is hardly the only city vying for London’s skittish companies. Paris, Amsterdam, Dublin and Luxembourg are all sending teams to Britain’s capital in the hopes of pulling companies to their own cities.

Even in Germany, the financial capital Frankfurt has long been considered one of the biggest beneficiaries, making a push especially for U.S. and British banks that want to keep their financial connection to the rest of the European Union alive.

Berlin probably needs the investment more than Frankfurt. The German capital remains one of the poorer corners of the country, even if things have picked up steadily since the fall of the Berlin Wall. Unemployment here stood at 9.2 percent in December, well above the 5.8 percent average for Germany as a whole.

To profit from Brexit, Berlin is going with its strengths. It’s hoping to carve a space to attract additional startups that already make up about one in five jobs in Berlin. About half of new investment in the city comes from the creative arts and IT communities, but the German capital is hoping to take a piece of Frankfurt’s financial pie, too. A large part of the interest since Brexit has come from financial-technology startups, so-called “fintechs.”

Even larger financial firms are recognizing that dynamic: “Berlin also has a good chance of becoming a significant financial center, simply because it’s highly attractive for young talent,” Marcus Schenck, Deutsche Bank’s chief financial officer, said last week in an interview with Sunday’s edition of German newspaper Die Welt.

The biggest problem? It could be housing all these new companies.

Long one of the cheapest major capital cities in Europe, real estate in Berlin has become tighter and prices for commercial buildings have been rising sharply in the past few years. Ms. Joras of Berlin Partner acknowledged that some companies have struggled to buy a location for their businesses and have been forced to rent instead.

The result is that city-backed investment in Berlin dropped more than 20 percent from a peak in 2015 to about €500 million last year, according to Berlin Partner’s annual report released Wednesday. The real-estate shortage is a problem, Ms. Joras said, which she expects will continue this year.

That still may not discourage London firms. Commercial real-estate isn’t exactly cheap in the British capital, either.

Christopher Cermak is an editor with Handelsblatt Global in Berlin. To contact the author: [email protected]